Tokenization’s Real Value is not 24/7 Liquidity

Tokenization’s Real Value Isn’t What You Think

Everyone’s celebrating 24/7 liquidity as the breakthrough benefit of tokenizing real-world assets. And yes, in a world where markets and news cycles never sleep, continuous trading access matters. But if you’re a retail investor cheering loudly right now, history suggests you should be careful what you wish for.

We’ve seen this movie before

I was working at Wellington Management Company when pre-market equity trading first emerged. The pitch was the same: more access, more flexibility, the ability to react in realtime for the individual investor. What actually happened? Professional trading desks with better information, faster systems, and deeper pockets systematically took advantage of the thin, early-hours markets. Retail traders paid the price.

Tokenized assets trading 24/7 will follow the same pattern in the early days. Limited liquidity plus institutional sophistication is a well-worn formula that ends badly for retail. This isn’t a reason to oppose tokenization. But let’s be honest about who benefits first; its the professional desks.

So why am I still excited about tokenization after 8 years in the digital assets industry?

The real value is self-custodied collateral

The genuinely transformative use case for tokenized assets isn’t when you can trade them; it’s what you can do with them when you’re not trading.

The world runs on leverage. Always has. Leverage allows professional risk managers to beat their peers and gather more assets. Leverage allows young families to purchase a home. Leverage exacerbates anything. And leverage requires collateral. Right now, posting collateral is slow, expensive, and limited to a narrow set of recognized assets. Tokenization changes that. Any asset (a slice of real estate, a private credit position, a commodities contract) can become collateral that moves instantly, programmatically, across any lending relationship. This is especially true of natively digital assets that already have liquidity (BTC, ETH, SOL, stables), or those that are less liquid but have trusted oracles for pricing.

Traditional lending, structured finance, volatile-market margin facilities, cross-border financing structures, etc. All of these become fundamentally more efficient when the collateral underlying them is tokenized. And beyond what we can model today, the use cases for programmable collateral that haven’t been invented yet are arguably the bigger opportunity. This is what keeps me going.

To Self-Custody, or Not To Self-Custody. That is the Question

Running alongside all of this is a debate that won’t be settled quickly: self-custody versus regulated, insured institutional custody.

Both have merit. Self-custody gives individuals and organizations direct control of their assets and adheres to the early cypherpunk worldview; no intermediary, no counterparty risk, no permission required. Institutional custody offers insurance, compliance infrastructure, and recourse when things go wrong. The right answer isn’t one or the other; it’s having the genuine ability to choose.

As the technology matures, that choice will become more accessible. We’ll see more individuals, companies, and autonomous agents holding tokenized assets directly. The friction that currently pushes most people toward custodied solutions will fall. When it does, the implications for how assets are held, moved, and used as collateral will be significant.

The bottom line

Tokenization is a real structural shift. The technology is in place, the regulations are catching up. But the benefits being marketed most loudly today are the least interesting ones. The durable value is in what happens when every asset can serve as programmable collateral, and when custody of those assets is genuinely a choice, not a constraint.

Who is the Hyperscaler now?

The term hyperscaler has become part of the lexicon generally meaning the largest of tech companies’ AI efforts and the datacenters and energy infrastructure they are building. But what if someone (my friend, Vicky) scales the services provided by the Hyperscalers?!?! Check this out…

Are Nanopayments worth a Damn?

What CLARITY will mean for Stables

Understanding the differences between the GENIUS Act (passed in 2025) and the pending CLARITY Act is essential. While the former established the “how” of stablecoin issuance, the latter determines the “where” and “what” of their economic utility—specifically regarding interest and distribution.

For Circle, CLARITY, in its current form (more below), would be a massive legislative win for Circle. It would allow for far wider adoption of USDC, and protect a large part of their gross margins. By codifying a federal regulatory perimeter, the bill would allow USDC to move from being a “crypto asset” to a legitimate institutional settlement rail. Circle has long positioned itself for this outcome.

As of Mar 4, 2026the bill’s current draft—which restricts sharing interest just for holding USDC—would cap their ability to share the massive revenue generated from their Treasury reserves directly with users. So for the large balances of USDC that sit unused, Circle (stablecoin issuer & distributor) or Coinbase (stablecoin distributor) can not share interest (aka: “rewards”). The bill currently reads that distributors can reward “activity-based” use of stables such as using a card in-which stables are the backend settlement mechanism, or making a direct payment using the stable on a blockchain rail.

Here is what it means: If the CLARITY Act passes with the Trump-endorsed “yield-friendly” amendments, we will likely see:

Institutional Adoption: With federal “Clarity,” the gates open for ETFs and corporate treasuries to hold stablecoins as a cash equivalent.

Bank-Stablecoin Hybridization: Banks will stop fighting the tech and start issuing their own stables to capture the yield.

Intermediary Evolution: Coinbase and others will pivot from being “exchanges” to becoming “yield-optimized neobanks.”

CFTC’s Approval of Digital Assets as Collateral

Its incredibly rewarding to see the CFTC’s recent pilot program and allowance of the use of digital assets as collateral for CFTC-registered entities. Here is why it matters:

The CFTC’s recent launch of the Digital Asset Collateral Pilot Program is not merely as a regulatory “test,” but is the inevitable modernization of the global clearing ecosystem.

For a traditional financial services firm, the question is no longer “if” digital assets belong on the balance sheet, but “how” they can optimize capital and improve returns. Below is a strategic synthesis of CFTC Letters 25-39 through 25-41, rewritten through the lens of an implementation lead tasked with integrating digital assets into an FCM (Futures Commission Merchant) and clearinghouse framework.

Executive Summary: Modernizing the Collateral Stack

The CFTC’s Global Markets Advisory Committee (GMAC) has cleared the path for a pilot program allowing the use of digital assets—specifically tokenized “traditional” assets (like T-Bills) and highly regulated stablecoins, plus some major non-stablecoin digital assets such as Bitcoin and Ethereum—as non-cash collateral.

For an FCM, this represents a shift from Static Collateral Management to Programmable Liquidity. Moving away from the friction of T+1 settlement and manual wire transfers toward a 24/7, real-time margin environment improves automation for counterparties and clearinghouses. Plus it allows for lower margin requirements, thereby improving ROI for traders and asset managers.

Strategic Roadmap: Implementation for FCMs

The focus must be on Risk, Reach, and Real-time.

  1. Tokenized High-Quality Liquid Assets (HQLA): Implementation begins with tokenized versions of what is already accepted: U.S. Treasuries and Money Market Funds (MMFs). By holding these on-chain, we can satisfy margin requirements with the CFTC and DCOs (Derivatives Clearing Organizations) instantly. The volatility of Bitcoin and Ethereum tokens make these assets far less desirable at an early stage of implementation.
  2. Smart Contract Margin Calls: Currently, “liquidity crunches” often happen because collateral is trapped in legacy settlement cycles. We will implement automated “ledger-to-ledger” transfers. When a client’s margin falls below a threshold, the system can automatically pull tokenized collateral, reducing the “Gap Risk” that plagues FCMs during high-volatility events. Ideally we will use smart contracts that pull market pricing, calculate margin variance, and issue instructions for collateral from counterparties.
  3. Custodian Integration: We must bridge our legacy ledger with institutional-grade digital custodians. This ensures that while the assets are “digital,” they remain bankruptcy-remote and compliant with CEA Section 4d (segregation of funds).
How Clearinghouses (CME & ICE) Can Lead the Pilot

For giants like Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE), this pilot is an opportunity to redefine the “Gold Standard” of clearing.

  • Real-Time Collateral Valuations: CME and ICE can use the pilot to move from “end-of-day” or “intra-day” batch processing to a continuous valuation model. Using blockchain oracles, they can apply dynamic haircuts to digital collateral in real-time based on market liquidity.
  • The “Digital Collateral Ledger”: ICE could create a private, permissioned DLT (Distributed Ledger Technology) where FCMs can pledge tokenized T-Bills as collateral. This would eliminate the need for physical movement of securities between the FCM’s custodian and the DCO, significantly reducing operational overhead.
  • Cross-Margining Efficiency: By accepting stablecoins or tokenized HQLA, CME can allow global participants to bridge collateral across different time zones without waiting for the Fedwire to open.
  • Become a Digital Assets Custodian: Creating (or acquiring) a Digital Assets Custodian allows a clearinghouse, or parent entity, to cross-sell a cash-flow-positive service.
Value Proposition: Benefits to Asset Managers & Trading Firms

Why should an Asset Manager or a Tier-1 Trading Firm care? The benefits are tangible and directly impact the bottom line:

  1. Enhanced Capital Efficiency (The “Idle Cash” Problem): * The Benefit: Currently, firms must hold significant “buffer” cash to account for settlement delays.
    • The Win: With digital assets, firms can remain fully invested in yield-bearing tokenized T-Bills right up until the moment margin is required. This effectively eliminates the “drag” on portfolio returns caused by idle margin cash.
  2. Reduced Operational Risk: * The Benefit: Most “fails” in the futures market are due to manual errors in the collateral movement chain.
    • The Win: Programmatic collateral movement reduces the human-in-the-loop, meaning fewer margin breaches and lower regulatory capital charges for the firm.
  3. 24/7 Global Mobility: * The Benefit: Traditional markets sleep; digital markets do not.
    • The Win: A London-based hedge fund trading on the CME can satisfy a margin call at 2:00 AM GMT using tokenized assets, without needing the U.S. banking system to be awake. This provides a massive competitive advantage in managing global macro risk.
Final Executive Outlook

The CFTC pilot is a signal that the “plumbing” of finance is being upgraded. For a traditional firm, adopting these capabilities isn’t just a compliance exercise—it’s a strategy to attract the next generation of institutional flow.

By leading on digital collateral, we aren’t just following a pilot; we are building the foundation for a more resilient, liquid, and efficient global market.

Stephen Leahy Digital Assets & Strategy Executive

The Industry of Staking

I have stated previously that my favorite class at Babson was CSCA: Competitive Structure, Competitive Analysis. The late (great) professor Lawless challenged us to think big picture about the strategic and long term choices competitors make. To me strategic decision-making for companies is like the Beta part of public market investing….be correct with your allocation to sectors of the market, and the fundamental research “alpha” of small difference in marginal P&L of Coke vs Pepsi meant little.

I was attracted to the industry of Staking after 3.5 years at Circle. I joined Circle in Jan 2021 as their first business development executive focused on the capital markets use cases of their stablecoin, USDC. I wanted to get closer to the actual functioning of blockchains as my time at Circle was coming to an end. As I did some research, the industry of staking was what caught my attention. While initially attracted to distributed ledgers and the idea of networks of servers being run by pseudonymous operators, I recognized that within financial services there would be need for the specialized services of staking the hundreds of billions dollars of proof-of-stake tokens held by institutional asset managers. And that is a large-scale opportunity.

I joined Kiln, a French company that was growing market share quickly in the staking services industry. An early entrant to staking, Kiln had a strong revenue base and the technical capabilities. They were consistently the best performing ETH staking service provider. And they had branched off and were very competitive in staking the other major PoS tokens. I joined as VP, Americas with a mandate to expand Kilns services in the US.

Providing staking services requires technical knowhow to run the machines (or vet and oversee the data center and hardware providers to do so), and blockchain engineers to build, run and update the specialized software that runs on the servers for each blockchain project. At this time there is no regulations or rules for compliance or reliability. So building a repuation of excellence is critically important; Kiln had that.

Companies offering staking services face a number of threats, which, combined, will cause the industry of staking services to be quickly absorbed by other service providers; the long-term outlook for independent staking service providers is poor.

While a unique set of services at this early time period in the use of PoS blockchains, Staking service providers have little moat and face even greater pricing pressure than other parts of the blockchain asset management value chain. Most blockchains are designed so as not to have staking penalties; why would they make it hard to maintain their network?!?! So low-cost operators are springing up quickly and offering 90% of the service and capabilities and reliability for half the price of the higher-reliability service providers.

The next strategic challenge the staking industry faces is from other service providers to asset management companies. If you are an existing custodian, who uses custody as a loss-leader, offering staking services is a riskless way to generate margin on thos same assets you are custodying. Staking is a 24/7/365 revenue generator with no market risk. That is more appealing to a custody CEO than adding a trading desk.

Finally, the Bitwise acquisition of Attestant in November 2024 will act as a blueprint for other asset managers. Bringing the staking services in-house adds a large margin to their businesses and does not require additional marketing spend. The Asset Managers are already competing in a very competitive field to land new AUM. When looking at some ETF revenue numbers, Bitwise charges 10bps on their Ethereum ETF; thats a tight margin. Knowing staking for ETF assets is would be approved in the US if Trump won the election, their purchase of Attestant is so smart. The staking services companies were pitching Bitwise with a service fee of 7-10 bps of the staking rewards. Lets do the math:

$1 million worth of ETH gets staked and returns the ETH average of 3% per annum. Thats $30,000 in staking rewards (assumes ETH price does not move). Paying 10bps service fee to an external staking service provider would cost BitWise $30 in costs and offset any additional revenues generated by the staking service.

So the staking industry is facing unbridled competition as every blockchain coder thinks to themselves, I run my own nodes, why don’t I just start offering that as a service. And the staking service providers are not as critical as some of the other asset servicing companies like professional asset manager and custodians (and prime brokers, lenders, etc).

Final thoughts: I can see the need for institutional holders of PoS assets needing the technical expertise of some blockchain coders in-house if they decide to execute their own staking services. But those firms already have a strong DevOps groups and teams, and its not like Fidelity or Blackrock are rushing to add the 43rd PoS blockchain that is going to launch this year. They are focused on ETH and Solana is making in-roads. No one at Blackrock is building on Berachain.

To Make it in Crypto, Be Onchain

I saw a recent post by @intern on x.com

And I was reminded of a lesson learned while I worked at Circle.

After a restructuring of the Revenue Team, I had inherited a “sales team” that had been hired by two different managers. Some had been hired to sell Circle’s minting/redeeming API’s to corporates, some had been hired to sell Circle’s Yield product. I was given this team at the same time as I was put under a newly hired Vice President. So I had a new boss, and a new team.

To get things started we held a team meeting in NYC and as part of that we had a poker night. We used chips for the pot and at the end of the evening it was time to settle up so we netted some payments and determined who owed and who was getting paid.

I offered to pay my share in USDC and the three people I was to pay all stated they did not have a wallet on their phone. I then asked everyone (including my newly appointed boss) who had a USDC wallet on their phone. Only 2 of the 9 other attendees had an active USDC wallet. I was stunned and disappointed. And realized I had more work to do.

I instituted weekly “crypto” training and testing in addition to their responsibilities to sell and help with market validation projects we worked on; RWA & Margin Collateral. Within 3 months I had let go of 3 of the 8 on my team. The others stepped up and have all had great success inside or external to Circle.

The lesson reiterated to me, especially now in early 2025 when there are a flood of global bank VP’s looking to cash in on their connections to hedge funds and land high-paying roles with crypto projects…..to move this industry forward we need missionaries, not mercenaries. It becomes very clear when on a call with prospects, clients, partners, vendors…..there are those who deeply understand the use cases and ability of distributed ledgers to solve a challenge. And there are those who are filling a quota.

Building a Perfect Team – NYT

I previously wrote a personal blog at ARHAIK.com from 2013 – 2019. The blog was intended more for my own writing and thought-processes than for a public audience. I occaisionally post content from ARHAIK.com to Conmodum.co’s “Of Interest” section. The below is from February 2016:

The below are excerpts taken from the first chapter of an extensive article in the New York Times magazine.  I have always been a student of capturing performance in organizations.  Some of the information in this article (I have only yet gone through Chapter One) goes against traditionally-accepted norms for building and managing teams.   My personal highlights are below.  Italicized words are directly copied from the NYT Magazine Article.

  • When building teams, does it matter the personality types involved?  If there were similar interest?  Motivated by similar rewards?  Google’s analysis showed that the team composition did not mater to the performance of the teams.  Differing mixes of personalities, ages, goals did not make a discernible difference to the effectiveness of any team.
  • Group norms, led by a strong leader but agreed to and embraced by all members is a hallmark of successful teams.
  • “As the researchers studied the groups, however, they noticed two behaviors that all the good teams generally shared. First, on the good teams, members spoke in roughly the same proportion, a phenomenon the researchers referred to as ‘‘equality in distribution of conversational turn-taking.’’ On some teams, everyone spoke during each task; on others, leadership shifted among teammates from assignment to assignment. But in each case, by the end of the day, everyone had spoken roughly the same amount. ‘‘As long as everyone got a chance to talk, the team did well,’’ Woolley said. ‘‘But if only one person or a small group spoke all the time, the collective intelligence declined.’’Second, the good teams all had high ‘‘average social sensitivity’’ — a fancy way of saying they were skilled at intuiting how others felt based on their tone of voice, their expressions and other nonverbal cues. One of the easiest ways to gauge social sensitivity is to show someone photos of people’s eyes and ask him or her to describe what the people are thinking or feeling — an exam known as the Reading the Mind in the Eyes test. People on the more successful teams in Woolley’s experiment scored above average on the Reading the Mind in the Eyes test. They seemed to know when someone was feeling upset or left out. People on the ineffective teams, in contrast, scored below average. They seemed, as a group, to have less sensitivity toward their colleagues.In other words, if you are given a choice between the serious-minded Team A or the free-flowing Team B, you should probably opt for Team B. Team A may be filled with smart people, all optimized for peak individual efficiency. But the group’s norms discourage equal speaking; there are few exchanges of the kind of personal information that lets teammates pick up on what people are feeling or leaving unsaid. There’s a good chance the members of Team A will continue to act like individuals once they come together, and there’s little to suggest that, as a group, they will become more collectively intelligent.In contrast, on Team B, people may speak over one another, go on tangents and socialize instead of remaining focused on the agenda. The team may seem inefficient to a casual observer. But all the team members speak as much as they need to. They are sensitive to one another’s moods and share personal stories and emotions. While Team B might not contain as many individual stars, the sum will be greater than its parts.”
  • Psychological safety, a feeling by each member that they were free to speak their mind and to be listened to, is one of the few behaviors found in almost all the successful groups.
  • “What Project Aristotle has taught people within Google is that no one wants to put on a ‘‘work face’’ when they get to the office. No one wants to leave part of their personality and inner life at home. But to be fully present at work, to feel ‘‘psychologically safe,’’ we must know that we can be free enough, sometimes, to share the things that scare us without fear of recriminations. We must be able to talk about what is messy or sad, to have hard conversations with colleagues who are driving us crazy. We can’t be focused just on efficiency. Rather, when we start the morning by collaborating with a team of engineers and then send emails to our marketing colleagues and then jump on a conference call, we want to know that those people really hear us. We want to know that work is more than just labor.“

Remote Workplace Culture (con’t)

I used to write regularly at ARHAIK.com (2013 – 2019) but no longer post there. I occasionally import a blog post from that site to Conmodum.co’s “Of Interest” page. The below is from Feb 20, 2017……

I expect I will write about this subject more often.  I have spent a lot of time reading and thinking about it, and as Visual Trading continues to add momentum and employees I will use this place as a means to flesh out my thinking.

As leader of remote teams, I have recognized the importance of following up and repeating myself for expectations.  Even small items like how to use a ticketing platform.  One of the teams implemented a new platform, and with any new platform there is a learning curve.  We tried a few features and functions (“F&F”), choosing to keep using a few and abandon some others.  With this baseline usage, we decided to add other F&F’s.  Like most new processes, we try things for a few weeks, share our thoughts, and determine whether to continue or abandon.

Though it was discussed on an informal call, some off the team members are not using the new F&F’s.  I got frustrated once, but then realized that to fully implement usage, I am asking people to change their habits.  So I need to help them understand how to change their habits.  Merely demanding it is not enough.

How to help change habits?  Today when the first few support tickets rolled in, I told the team not to load them into the ticketing platform.  Once there were four tickets I grabbed the two team members who had not been using the new F&F’s and together we input the tickets using the new F&F’s.  I helped them see what we are doing and why I think it will work.  And I re-iterated their input on the F&F’s will be important when we review in a few weeks.

As I have monitored the ticketing platform today, I see the new F&F’s being used by all team members.  With a truly remote team, the ability to cajole usage by sitting next to someone is not there.  And “public” reminders via team chats are not great either.  So topic-specific training from the top down is now a part of my processes when we want to implement a new process or procedure.

PS – When I went to search for an image to tie into this post, I typed in “remote training”, which Google auto-filled as “remote training collar” and populated the search with electric shock dog collars.  I am not condoning the use of electric shock collars on team members (yet).  😉